Cash News
Shares of Aadhaar Housing Finance jumped over 8% today, following a positive assessment from Kotak Institutional Equities.
The company’s shares were trading 8.15% higher at Rs 421.90 on the Bombay Stock Exchange at 12:57 pm.
The brokerage firm initiated coverage on the stock with a ‘buy’ rating, setting a target price of Rs 550, implying a potential upside of 41% from the previous close of Rs 390.
Why the surge?
Kotak Institutional Equities assessment is based on Aadhaar’s strong positioning in the affordable housing finance market.
The brokerage suggested that the company stands out among its peers due to its larger balance sheet, longer operational history, and superior return on equity (RoE).
Aadhaar’s loan growth is expected to be 21% CAGR between FY2024-27, aligning more closely with mature housing finance companies rather than smaller, faster-growing competitors.
Founded in 2010, Aadhaar Housing Finance has grown to become one of the largest players in the affordable housing segment, boasting an asset under management (AUM) of Rs 211 billion in FY2024.
What makes Aadhaar Housing Finance different?
Aadhaar Housing Finance is not just large; it’s also well-diversified, according to the brokerage.
The company’s loan book is spread across the country, with its largest state, Uttar Pradesh, making up only 15% of its exposure. The geographical diversification sets it apart from competitors like Home First, which has 31% of its loan book concentrated in Gujarat.
Additionally, Aadhaar has a higher proportion of salaried customers at 57%, compared to the 26-68% range seen among its peers. It’s focus on salaried customers generally makes the loan book more resilient to economic downturns.
Financial health and growth prospects
Kotak also highlighted Aadhaar’s financial metrics. The company’s RoE stood at 18.4% in FY2024, higher than many of its peers. Although this is expected to moderate slightly due to the recent IPO, Aadhaar’s consistent performance is a strong indicator of its potential for future growth.
Moreover, Aadhaar’s recent shift towards serving self-employed and informal sector customers is noteworthy. While these customers offer higher yields (16.1% vs. 12.5% for salaried customers), they also come with higher risks. Despite this, Aadhaar has managed to maintain a relatively stable gross NPA ratio, a sign of effective risk management.
What should investors do?
For retail investors, Aadhaar Housing Finance presents a promising opportunity, said the brokerage.
Kotak’s ‘buy’ rating and the potential 41% upside make it an attractive investment. However, given the shift towards higher-risk customer segments, investors should also be mindful of the associated risks.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)